**Corsair Gaming** (NASDAQ:** CRSR**), the gaming console and peripherals company, should do well this year as it enjoys continued growth. CRSR stock will benefit from its steady earnings growth and increases in its free cash flow (FCF). In short, this is a very profitable company and the stock will reflect its steady progress.

For example, on Aug. 3, Corsair released its second-quarter earnings report showing that sales had risen 24.3% year-over-year to $472.9 million. Moreover, its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $51.6 million, up 4% year-over-year, with an adjusted EBITDA margin of 10.9%.

More importantly, the company produced cash flows from operations of $31.6 million, which was lower than last year, but still positive. Since its capex was very low during the quarter at just $2.86 million, its free cash flow (FCF) was $28.77 million. As a percent of its $472.9 million in sales, Corsair had an FCF margin of 6% during the quarter.

### Estimating Corsair’s Free Cash Flow

I suspect that over time this FCF margin will rise to between 9% and 10%. For example, as I wrote on July 20, Corsair made a 9.39% FCF margin in 2020. So let’s assume that the company can make at least a 7% margin by next year.

For example, analysts now estimate that 2022 sales will reach $2.2 billion on average, and some even have an estimate as high as $2.3 billion. Let’s use $2.25 billion. So if we multiple 7% by $2.25 billion, its FCF could hit $157.5 billion by 2022 or shortly thereafter.

In fact, if the company can eventually reach a 9% margin, its FCF could hit $202.5 million. For simplicity’s sake, let’s use $200 million as an estimate for 2022 FCF.

### What Corsair Stock Is Worth

In July, I wrote that to value CRSR stock, we should divide the FCF estimate by 6%, as its FCF yield metric. So, for example, if we divide $200 million by 0.06, we get $3.333 billion. That is 23.3% over the market cap of $2.7 billion based on a price of $28.83. In other words, the price target is 23.3% higher at $35.55.

But I also suspect that the company will eventually earn a better FCF yield. The market will lower the FCF yield to 5% over time. That is the same as multiplying FCF by 20 times (i.e., 1/0.5=20x). So if we multiply $200 million by 20, the resulting target market cap is $4 billion.

This is 47.9% higher than today’s $2.7 billion market cap and implies that CRSR stock should trade at $42.64.

Now we have two different target price estimates: $35.55 and $42.64. On average the price is about $39 per share. This is close to my estimate in July that it was worth $42 per share. It also represents a potential gain of 35% over today’s price of $28.83.

Also, I expect that as we get closer to Q3 and Q4 earnings reports, the sales and FCF margins will rise. I wrote in July that the company states that its two slowest quarters are Q1 and Q2.

### What to Do With CRSR Stock

Analysts also like CRSR stock. *TipRanks.com i*ndicates that four analysts who have written about the stock in the last three months have an average price of $39 (just like me). That is a potential upside of 35%.

In fact, *Seeking Alpha* says that nine analysts on Wall Street have an average price of $39.67 per share. That is 37.6% over today’s price.

In other words, everyone is in agreement — Corsair Gaming is an excellent stock worth investing in. My model may be different from the other analysts, but we came to the same conclusion: Corsair has consistent and steady revenue and FCF growth. Basically, Millennials love to game online and they are constantly buying consoles and peripherals, Covid-19 or no Covid-19.

So investors should probably begin taking a toe-hold stake in CRSR stock. They should take a view to buy more on weakness, especially if Q3 earnings do not perform exactly as expected.

*On the date of publication, Mark R. Hake did not hold a position directly or indirectly in any security mentioned in the article.* *The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.*

*Mark Hake writes about personal finance on ***mrhake.medium.com*** and runs the ***Total Yield Value Guide***which you can review **here**.*